Frequently Asked Questions: #fdicompany

Foreigners can establish the following types of business entities in Indonesia:

1. Foreign-Owned Limited Liability Company (PT PMA):

• Allows foreign ownership up to 100% in many sectors
• Requires minimum investment of IDR 10 billion
• Needs at least 2 shareholders, 1 director, and 1 commissioner
• Can conduct profit-generating activities

2. Representative Office (KPPA):

• Used for market research and promotion
• Cannot engage in direct sales or revenue-generating activities
• No minimum capital requirement
• Limited to 3-5 year permit duration

3. Foreign Trade Representative Office (KP3A):

• Specifically for assisting with trading activities
• Cannot engage in direct sales
• Can be established in various regions of Indonesia

4. Foreign Construction Services Business Entity (BUJKA):

• For foreign construction companies
• Can participate in large-scale projects
• Must partner with a local Indonesian company

5. Branch Office:

• Extension of foreign parent company
• Limited to certain sectors like banking and oil/gas

The most common choice for foreign investors looking to conduct business activities in Indonesia is the PT PMA. Representative offices are often used as an initial step to explore the market before establishing a full PT PMA. The type of entity allowed depends on the business sector and activities, as regulated by Indonesia’s Positive Investment List.

URL: https://okusiassociates.com/types-of-business-entities-for-foreigners-in-indonesia

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Setting up a business in Indonesia offers several benefits for foreign investors:

• Large and Growing Market: Indonesia is the largest economy in Southeast Asia with a population of over 270 million, providing access to a vast consumer base.

• Strategic Location: Positioned at the crossroads of the Pacific and Indian Oceans, Indonesia offers excellent access to other Asian markets.

• Rich Natural Resources: The country is abundant in natural resources, including oil, gas, minerals, and agricultural products.

• Young Workforce: Indonesia has a large, young, and increasingly skilled workforce, providing a valuable talent pool for businesses.

• Improving Infrastructure: Ongoing infrastructure development is enhancing connectivity and logistics across the archipelago.

• Economic Stability: Indonesia has maintained relatively stable economic growth over the past decades.

• Government Incentives: The government offers various incentives for foreign investors, including tax holidays and allowances in certain sectors.

• Digital Economy Growth: Rapid adoption of digital technologies is creating new business opportunities, especially in e-commerce and fintech.

• Tourism Potential: Indonesia’s diverse culture and natural beauty make it a prime destination for tourism-related businesses.

• ASEAN Membership: As part of ASEAN, Indonesia provides access to a broader regional market through various free trade agreements.

• Improving Ease of Doing Business: Recent reforms have aimed at simplifying business processes and reducing bureaucracy.

• Cultural Diversity: The country’s cultural richness can be leveraged for various business opportunities, from creative industries to niche markets.

Before proceeding with any investment plans, it’s crucial to consult the Negative Investment List (DNI) to ensure your intended business activity is open to foreign investment and to understand any applicable restrictions or local partnership requirements.

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The Negative Investment List (Daftar Negatif Investasi or DNI) is a key regulation in Indonesia’s foreign direct investment (FDI) regime that outlines restrictions on foreign investment in various business sectors. Here are the key points about the DNI and its effects on foreign investment:

• Purpose: The DNI specifies which business fields are:

  • Closed to foreign investment
  • Restricted to investment (e.g. reserved for Indonesian SMEs or state-owned companies)
  • Open to foreign investment but with certain conditions or ownership limitations

• Structure: The list categorizes business fields under government classifications and determines:

  • Sectors where foreign investors can have 100% ownership
  • Sectors requiring partnerships with Indonesian businesses
  • Specific regulations that apply to certain sectors

• Updates: The DNI is typically updated every two years to reflect changes in investment policies.

• Scope: The current DNI contains 280 business fields. Sectors not listed are supposed to be open to 100% foreign ownership.

• Effects on foreign investment:

  • Determines maximum foreign ownership percentages for different sectors
  • Requires foreign investors to partner with local companies in some fields
  • Sets compliance requirements with local regulations for certain sectors
  • Creates some uncertainty due to potential for wide interpretation

• Minimum investment: While not directly part of the DNI, there is a nominal minimum investment of USD 300,000 for foreign-owned companies.

• Location: Foreign investment companies generally have freedom to choose their location in Indonesia.

The DNI plays a crucial role in shaping foreign investment in Indonesia by defining the sectors and conditions under which foreign companies can operate. It’s important for foreign investors to carefully review the latest DNI and consult with experts to understand how it applies to their specific business plans in Indonesia.

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Foreign investment restrictions in Indonesia are governed by the Negative Investment List (DNI), which outlines sectors that are closed or have limitations for foreign ownership. Key points to consider:

• The DNI is periodically updated by the Indonesian government to reflect changes in investment policies.

• Sectors are categorized as:

  • Fully closed to foreign investment
  • Open with certain restrictions (e.g., maximum foreign ownership percentage)
  • Open with specific requirements (e.g., partnerships with local SMEs)
  • Fully open to foreign investment

• Some commonly restricted sectors include:

  • Media and broadcasting
  • Certain retail and distribution activities
  • Some transportation services
  • Specific agricultural products

• Restrictions can vary based on:

  • Percentage of allowed foreign ownership
  • Minimum capital requirements
  • Location (e.g., special economic zones may have different rules)
  • Specific licensing or partnership requirements

• It’s crucial to consult the most recent version of the DNI before planning any foreign investment in Indonesia.

• Some sectors may require a combination of foreign and local ownership, promoting partnerships with Indonesian entities.

• Certain strategic industries (e.g., defense, natural resources) often have more stringent restrictions or are entirely closed to foreign investment.

• The Indonesian Investment Coordinating Board (BKPM) can provide guidance on interpreting the DNI for specific business activities.

• Even in open sectors, there may be additional licensing or operational requirements for foreign-owned companies.

• The government occasionally introduces new policies or incentives to attract foreign investment in priority sectors, which may override some DNI restrictions.

Always consult with legal experts or investment advisors familiar with the latest Indonesian regulations to ensure compliance with current foreign investment restrictions.

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